Module 2 Flashcards
What does MLR Stand For?
Medical Loss Ratio
What is Objective Risk?
The relative variation in actual claims experience from what was expected.
Objective risk declines with what?
It declines with the number of covered lives (the law of large numbers)
T or F:
Expected Claims are the probability of loss times the magnitude of loss.
True
T or F:
Gross Premium = Prue Premium/(1-Loading %)
True
T or F:
Pure premium or actuarial fair premium is based on expected claims.
True
T or F:
Manual rating is based on a pooled approach.
False
T or F:
Subjective Risk is found when we examine an individual.
True
T or F:
Objective risk declines as the number of covered lives decreases.
False
T or F:
Specific stop-loss insurance covers risk in excess of a certain pooling point.
False
T or F:
Geography and smoking status are factors considered in group underwriting.
True
T or F:
A reliable risk pool objective is to have a small dispersion of possible outcomes, which can be obtained in larger groups.
True
T or F:
Adverse selection can occur when an insurance carrier seeks just the healthy populations by “cherry picking” who they will cover.
True
Pure Premium is best described as:
A. Expected claims (probability of loss x magnitude of loss)
B. Gross Premium
C. What the insurer applies to cover its objective risk, profit, and costs of running a plan
D. What is found when we examine an individual’s degree of risk aversion.
E. How insurance carriers use a group’s experience as well as its overall book of business.
A - (Page 31-32)
All of the following are true about ratings and stop-loss coverage, EXCEPT:
A. Community rating is a pooled approach.
B. Manual rating comes from actual geographic, age, and health-based rate manuals. Aspects of it are still used today.
C. Aggregate stop-loss coverage limits the exposure of a firm for a single claim/individual.
D. The future prospective experience rating is based on the prior/current claims of a group.
E. Retrospective experience rating is where a group pays a lower payment up front and agrees to make a retro payment at the end of the year as needed.
C - Aggregate stop-loss is coverage over a certain composite pooling point for the exposed group. Specific stop-loss coverage limits exposure of the firm for a single claim or individual. (Page 37-38).
This is based on expected claims (the probability of loss times the magnitude of loss).
Pure Premium
Gross Premium = Pure premium / (1-Loading Percentage)
Gross Premium
What the insurer applies to cover its objective risk and the costs of running the plan while still making some profits.
Loading Percentage
The relative variation between actual claims experienced and claims that were expected.
Objective Risk
This is found by examining an individual’s degree of risk aversion.
Subjective Risk
Conditions that are not prevented by vaccines, cured by medication, or just disappear on their own. (i.e., some cardiovascular diseases).
Chronic condition examples
To have a small dispersion of possible outcomes and a large number of lives enrolled.
Reliable risk pool objective
This type of experience rating looks at past claims for setting a premium on that basis.
Prospective experience rating
The insurer bears the risk and has a loss if claims experience minus investment earnings exceeds the premium.
Who bears the main risk in an insurance arrangement